Quantitative Fundamental Theorem of Asset Pricing

Understand

In this paper we provide a quantitative analysis to the concept of arbitrage, that allows to deal with model uncertainty without imposing the no-arbitrage condition.

• In markets that admit ``small arbitrage", we can still make sense of the problems of pricing and hedging.
• The pricing measures here will be such that asset price processes are close to being martingales, and the hedging strategies will need to cover some additional cost.
• We show a quantitative version of the Fundamental Theorem of Asset Pricing and of the Super-Replication Theorem.